Moody s Approach to Rating AT1 and T2

Transcription

1 Moody s Approach to Rating AT1 and T2 IFLR BANK CAPITAL CONFERENCE LAURIE MAYERS, Associate Managing Director 26 February 2015

2 Agenda 1. Current bank methodology approach to rating hybrids 2. Building blocks of our proposed bank methodology: macro profile, BCA, Affiliate Support, LGF and additional notching, government support 3. Rating of AT1 and T2 and Proposed Equity treatment of hybrids under our proposed bank methodology LGF Waterfalls: jurisdictional considerations 4. Expectations regarding TLAC and MREL 2

3 Current bank methodology approach to rating hybrids and allocation of equity credit Current approach for all but high trigger contingent capital instruments is to notch down from the adjusted stand alone credit assessment or Adj BCA Notching takes into account contractual features such as coupon suspension or write down features which could result in higher losses in the event of default Systemic support not incorporated in hybrid ratings Equity credit (as in put to tangible common equity) assigned based on our hybrid tool kit Rating approach to high trigger cocos updated in July 2014 Model based approach Inputs include issuer s BCA, current and forward looking CET1 ratio, trigger level and contractual terms Capped by rating of host non viability security 3

4 Building Blocks of our Proposed Bank Methodology 4

5 Rating of Debt and Deposits under Loss Given Failure in Operational Resolution Regimes High trigger contingent capital will continue to be rated based on the model incorporated in our bank methodology in July 2014 Equity Credit: Full equity credit for high trigger instruments through adjustments to TCE Other T1 and T2 not included in TCE but credited to failure balance sheet for LGF Other AT1 and T2 will be rated as a function of the extent of subordination and volume of debt in each debt class within the at failure waterfall of a given issuer Order of the waterfall will take account of specificities of individual resolution regimes Existence of source of strength principles Powers of resolution authorities over holdcos vs failed opcos Limited liability of holdcos to opcos Requirements to write down or convert capital instruments prior to bail in Explicit preference vs potential for preference for junior deposits 5

6 Expectations regarding TLAC and MREL We expect the resolution objectives of protecting senior unsecured and operational liabilities in order to maintain critical functions of failed opcos to result in alignment of TLAC and MREL requirements both in terms of quantity and quality of loss absorption Ultimately when loss absorbency requirement is largely met with internal TLAC/MREL, we see EU holdco liabilities ranking pari passu with opco liabilities of the same debt class with the exception of holdco senior which we would position between opco senior and opco sub since it will largely be funding contractually subordinated opco senior debt. Implications for instrument ratings... We indicated in our RFC that we would consider alternative waterfalls to a top down one (bail in of holdco then opco liabilities) when we deemed appropriate in operational resolution regimes. Final views on this will be incorporated in our new methodology once published. 6

7 Disclaimer 7

8 Laurie Mayers